When Is a House Considered Under Contract?

When a house is considered “under contract,” it signifies a key step in the real estate transaction process. This status indicates that a buyer and seller have a mutually accepted, legally binding agreement for the sale of a property. While reaching this point is a substantial step forward, it does not mean the sale is finalized. Certain conditions must be met before ownership officially transfers.

Foundational Elements of a Real Estate Contract

For any real estate agreement to be legally enforceable, it must contain several foundational elements. First, there must be a clear offer from one party and acceptance by the other. This “meeting of the minds” means both the buyer and seller understand and consent to the terms, including the property description and purchase price. Any changes proposed during negotiation constitute a counteroffer, which effectively rejects the original offer and requires new acceptance.

Another element is consideration, which involves something of value exchanged between the parties. In real estate, this is the purchase price, often including an earnest money deposit from the buyer. Earnest money demonstrates the buyer’s commitment to the transaction and is held in escrow by a third party. All parties involved must also be legally competent, meaning they are of legal age and possess the mental capacity to understand the contract’s implications.

The contract’s purpose must also be lawful, ensuring the transaction adheres to existing laws and public policy. Real estate contracts are required to be in writing to be enforceable, a principle rooted in the Statute of Frauds. This written agreement must clearly identify the property involved and detail all agreed-upon terms to avoid ambiguity.

The Path to Being Under Contract

The process of a house becoming “under contract” begins when a prospective buyer submits a written offer to the seller. This offer outlines the proposed purchase price, terms, and conditions for the sale. The seller then reviews the offer and can choose to accept it, reject it, or issue a counteroffer with modified terms. This negotiation phase continues until both parties mutually agree on all aspects of the sale.

Mutual acceptance occurs when the buyer and seller agree on all price and terms, formally creating a binding contract. This agreement is solidified when the purchase agreement has been fully signed by all parties involved. The date on which the last party signs the contract is often referred to as the “execution date.”

The “effective date,” which triggers timelines for contractual obligations like inspection periods and financing deadlines, is the date when the last party signs and communicates that acceptance to the other party. Once this purchase agreement is executed and the earnest money deposit is received, the house is considered “under contract.” At this point, the seller removes the property from active marketing.

Understanding Common Contract Contingencies

Even after a house is “under contract,” the agreement is subject to specific conditions known as contingencies. These clauses are included in the purchase agreement to protect either the buyer or the seller, allowing a party to withdraw from the contract without penalty if certain conditions are not met. Contingencies come with specific timelines during which the conditions must be fulfilled.

One common contingency is the inspection contingency, which allows the buyer a specified period to conduct a professional home inspection. If the inspection reveals significant issues, the buyer can negotiate repairs, a price reduction, or terminate the contract and receive their earnest money back. Another is the appraisal contingency, ensuring that the home appraises for at least the purchase price. If the appraisal comes in low, the buyer may renegotiate the price or withdraw from the deal, as lenders will not loan more than the appraised value.

The financing, or loan, contingency is common, permitting the buyer to cancel the contract and retrieve their earnest money if they cannot secure a mortgage within a set timeframe. This protects the buyer from being obligated to purchase a home they cannot finance. The sale of current home contingency makes the buyer’s purchase dependent on selling their existing property within a defined period. If these contingencies are not satisfied by their deadlines, either party may have the right to nullify the contract, and the property might return to the market.